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In 2022, Russia’s invasion of Ukraine and the subsequent protracted war deeply deteriorated business climate. Insecurity, political and economic uncertainty, supply chain disruptions and infrastructure destruction lead to capital outflows. Most investments are made in manufacturing (23.3%), wholesale and retail trade; repair of vehicles and motorcycles (16.3%), mining and quarrying (11.5%), financial and insurance activities (7.6%), and real estate activities (7.3%). The main investors in Ukraine are Cyprus (33.1%), the Netherlands (19.5%), Switzerland (5.1%), Germany (5%), and the UK (4.8% - National Bank of Ukraine, 2022). The EU as a whole accounts for 74.4% of the total stock. In Q1 2023, Ukraine attracted USD 1.1 billion in FDI, comprising USD 128 million in capital, USD 1.1 billion in reinvested funds, and a debt component of USD -64 million. As of March 31, 2023, the cumulative direct investment in Ukraine reached a total of USD 53 billion, as reported by the Ukraine Invest agency.

Despite the war, the government has launched a drive to attract foreign investment of up to USD 400 billion in various sectors including technology, the agro-industry, clean energy, defence, metallurgy and natural resources. Furthermore, the reconstruction efforts in Ukraine are expected to draw investments totalling hundreds of billions of dollars from governments, international financial institutions, and the private sector. In addition to political instability, investors pointed out before the war that the underlying inefficiency and corruption in the justice system were among the main obstacles to investment. Other serious impediments are the complexity of laws and regulations, poor compliance with contracts and poor governance. However, the country has a large internal market, proven agricultural potential, energy and mineral resources and a strategic geographic location, making it a transit hub and a gateway to Europe and Eurasia. Before the war, progress had been made in terms of obtaining building permits, connection to electricity, protection of minority investors and cross-border trade. Ukraine has also simplified and reduced the costs of the registration procedure for representative offices of foreign business entities. Overall, the war significantly worsened the business climate: challenges such as Russia's deliberate destruction of Ukrainian civilian infrastructure, the occupation of a significant portion of the territory, disruption of the workforce resulting from the invasion, the presence of unexploded ordnance, and other ecological consequences of the war hinder both new and existing investors. It is worth noting that while these challenges exist, the majority of Ukraine's regions are not directly on the frontlines. Ukraine ranks 55th among the 132 economies on the Global Innovation Index 2023 and was not ranked in the 2023 Index of Economic Freedom due to Russia’s ongoing invasion.

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